Two years into the Pentagon’s efficiency initiatives aimed at finding and eliminating excess spending —efforts that identified $178 billion dollars in five-year cost cutting, Defense Secretary Robert Gates said there are more savings to be found. But, he said, they’re not in more cuts to weapons systems. They’re in overhead costs: operations and maintenance, and pay and benefits.

DoD has saved money on personnel costs through Gates’ efficiencies and other measures, including the governmentwide civilian pay freeze. DoD also eliminated or downgraded hundreds of general officers and senior executives. But Gates, speaking Tuesday at the American Enterprise Institute, said it’s time for the military and the country’s political leadership to tackle the politically thorny issues of military pay and benefits.

“I think frankly that the pressure on the Defense budget provides us an opportunity to tackle some issues that the department has avoided for a long time, because they’re so politically fraught, and all of these things would require Congressional approval,” Gates said.

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Gates, in what aides say will be one of his last major policy speeches before leaving office next month, said part of the examination of personnel issues should be military pay rates themselves.

“Taking on some of these issues could entail re-examining military compensation levels in light of the fact that—apart from the U.S. Army during the worst years of Iraq—all the services have consistently exceeded their recruiting and retention goals,” Gates said. “It could mean taking a look at the rigid, one-size-fits-all approach to retirement, pay and pensions left over from the last century. A more tiered and targeted system—one that weights compensation towards the most high demand and dangerous specialties—could bring down costs while attracting and retaining the high quality personnel we need.”

On health care spending—the military’s fastest growing cost center, according to DoD officials, Gates has asked Congress to allow a $5 per month increase in premiums for working-age retirees.. A compromise version of that proposal appears in the DoD authorization bill that the House will vote on soon. Twice before, Congress has rejected Gates proposals for increases in the TRICARE program, which has not seen a fee increase since 1995.

On the topic of military pensions, Gates said the current system makes little sense.

“Depending on which service you’re talking about, and whether you’re talking about enlisted or officers, roughly 70 percent of the force does not stay for retirement,” he said. “Someone who has served for 10 years leaves with nothing. That’s not fair. The other piece is we take someone who’s highly skilled, he’s reached lieutenant colonel, he has 20 years in, he’s reached his maximum value to the department, and we give him every incentive to leave.”

Instead of sending those officers home with a pension, Gates said the military should find ways to make use of the decades of training and education it’s invested in them.

Christopher Preble, director of foreign policy studies at the Cato Institute, said Gates is right to tackle personnel costs, but he’s skeptical that Congress will want to take on the third rail issues of military entitlements.

“In spite of the fact that there are many, many studies that show you can reform pay and benefits and ultimately end up with a better quality of life for troops, the reality is it’s extremely difficult to push through those kinds of changes in Congress,” he said during a panel discussion after Gates’ speech. “Which is why I tend to believe that to truly drive down personnel costs, you have to cut end strength. You’ll end up with a force that’s slightly smaller, but perhaps even better compensated than it is today.”

Reducing force structure

Gates also wants the Pentagon to examine the issue of end strength. In fact, he said it will have to if it is to achieve the $400 billion in national security savings the President has asked for over the next dozen years. But he said those cuts have to be executed in a way that avoids across-the-board reductions that he said “hollowed out” the military in the 1970s and 1990s.

Instead, he said, political leaders will have to decide which military capabilities are critical, and in which areas they’re willing to accept more risk. That’s a conversation Gates said he’s attempting to force with a review of Defense programs he launched last week.

“The overarching goal will be to preserve a U.S. military capable of meeting crucial national security priorities even if fiscal pressure requires reductions in that force’s size,” he said. “I’ve said repeatedly that I’d rather have a smaller, superbly capable military then a larger, hollow, less capable one. However, we need to be honest with the President, with the Congress, with the American people, indeed with ourselves, about what those consequences are: that a smaller military, no matter how superb, will be able to go fewer places and be able to do fewer things.”

Management savings

As for finding other savings in the Pentagon budget, Gates said there’s plenty more waste to be wrung out of the DoD management structure, even if it doesn’t begin to approach the level of $400 billion. He said he was disappointed that the efficiency reviews weren’t able to find more savings in the department’s combatant commands, which handle specific geographic areas or functional areas throughout DoD.

He said more management efficiencies could also be found in the Defense agencies. Unlocking savings in those DoD components outside the traditional military services, he said, was like going on an Easter egg hunt.

“The agencies, field activities, joint headquarters, and support staff functions of the department operate as a semi-feudal system—an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results relative to the department’s overall priorities,” he said. “I have always believed inspired leadership can overcome deficient organization charts. But in this case, it may be time to consider new governance structures and arrangements. Here, the Congress has been ahead of the department by pushing us to establish a centralized structure led by a chief management officer.”

Gates said the so-called “fourth estate” of DoD was only able to identify about a $1 billion in five-year savings, from a group of organizations that spend at least $64 billion per year.

Low-hanging fruit already ‘plucked and crushed’

One area Gates said Congress shouldn’t look to for savings though is more major weapons systems reductions. He said the efficiency initiative cut out 30 underperforming or unneeded systems, and there’s not much fat left.

“When it comes to our military modernization accounts, the proverbial ‘low hanging fruit’—those weapons and other programs considered most questionable—have not only been plucked, they have been stomped on and crushed,” he said.” What remains are much-needed capabilities relating to air superiority and mobility, long-range strike, nuclear deterrence, maritime access, space and cyber warfare, ground forces, intelligence, surveillance and reconnaissance, that our nation’s civilian and military leadership deem absolutely critical.”

Gates said the review going on now will try to connect the Pentagon’s strategies to the actual military force structures it will need to act on those strategies. That analytical work, he said, has never been done before.

(Copyright 2011 by FederalNewsRadio.com. All Rights Reserved.)

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